Divide and Conquer Your Past Due AR
Increase Cash Flow by Tailoring Your Collection Strategies to Your Customers
“One size does not fit all.” To often we try to put round pegs in square holes. This misguided search for a singular understanding applies to many things, including collecting Accounts Receivable (AR). Optimal Collection results are achieved by utilizing different collection techniques with different types of customers. Treating them all the same is a sure path to mediocre results.
Over complicating your collection approach, however, can absorb way too much scarce time and diminish results in terms of cash collected and the elimination of past due balances. Keeping it simple is the best way to optimize your results.
How then should you differentiate customers without making it too complicated? How do you determine which customer types merit which collection protocols? Also, which elements of your Collection Strategies should vary based on customer characteristics and situations?
Please feel free to share this newsletter with your small business customers . . . it just might help them pay you sooner!
Differentiating Your Customers
The two most important customer account characteristics that will foreshadow the Collection Strategy you should pursue are:
The size of their AR balance
Their credit risk profile
As a rule, customers that owe you larger amounts of past due AR should receive more and earlier attention than customers who owe less. Likewise, customers who exhibit more Credit Risk should receive more and earlier attention than customers who have a lower Credit Risk profile. This “prioritization” principle is illustrated below.
As highlighted by this matrix, the red boxes on the bottom right are given higher collection priority, compared to the green boxes on the the upper left, because they represent larger amounts owed coupled with higher risk. We’ve also numbered each box from 1 to 9 (bad to good) to provide a relative ranking in terms of collection priority.
Read on to learn more about . . .
Ranking your customers and assigning risk classifications
The five key elements that define your approach to collections
The ins and outs of escalation
Dealing with customer idiosyncrasies